SMSFs and property: What are the rules?

Jude Schofield • February 7, 2022

With the property market hitting all-time highs in 2021, interest in investing in direct property through your SMSF has never been higher.

In the  September 2021 quarter, Australia’s SMSFs had almost $88 billion invested in non-residential real property, with another $47 billion in residential real property.

But before you add property investments to your SMSF, there are rules you need to be aware of.

Rules for SMSF property investments

All SMSF investments – not just property – must meet the  sole purpose test. This means your SMSF must be maintained for the sole purpose of providing retirement benefits to fund members or their dependants.

Also keep in mind the related party rule, which prohibits SMSFs from buying real property from a  related party. This means your relatives, business partners and their spouse or children, any company a fund member and their associates control or influence, or any trust a fund member or their associates control.

There are two exceptions. One is buying  business real property  like agricultural property, or a shop or office from which you operate your business. The other is if the value of the  in-house asset  is less than 5 per cent of your SMSF’s total assets.

Related parties and SMSF members can lease business and farming properties from your fund, but the arrangement must be at commercial rates and paid in full on the due date. Renting residential or holiday properties to related parties – even at market rent – is not permitted.

Borrowing the right way

Buying a property investment usually involves borrowing money. Again, strict rules apply.

SMSF loans are normally through a  limited recourse borrowing arrangement  (LRBA), although other structures such as tenants-in-common or related non-geared unit trusts may be acceptable. In the  September 2021 quarter, SMSFs had almost $63 billion invested through LRBAs.

LRBAs prohibit lenders from seizing other assets in your SMSF if you default on your loan, so they tend to impose tougher loan conditions. Most lenders now require an SMSF to have a buffer of cash and/or shares equivalent to around 10 per cent of the property’s value.

You must also establish a bare trust (which is separate from the SMSF) to hold the property. And restrictions are imposed on the modifications you can made to your property, with significant changes requiring a new loan. Improvements must be paid for from cash already in the SMSF, not borrowed money.

Be mindful of diversification

Although including property in your SMSF can be a great idea, they are expensive assets. Unless the fund has a high balance, they can reduce diversification across asset classes. This can leave your SMSF exposed to investment risk and make it tricky to pay member benefits without needing to sell the property.

Adding an investment property must also fit the fund’s  investment strategy  in terms of diversification, liquidity and maximising returns to fund members. The ATO no longer automatically accepts buying an investment property is in the best interest of members, if it is the main asset and the fund’s total balance is low.

The fund’s trust deed must also provide the trustees with authority to implement a borrowing arrangement.

Tax benefits

A key benefit of using your SMSF to invest in property is the concessionally taxed super environment. Instead of paying your marginal rate, an SMSF only pays  15 per cent  on investment income the property earns. Once fund members retire, rental income is tax-free.

There are also capital gains tax benefits. Properties held by an SMSF for more than 12 months pay a  discounted  rate of 10 per cent on any capital gain when sold.

Interest payments on borrowings are tax deductible and if your SMSF’s expenses exceed its income, a taxable loss can be carried forward to offset future income. Losses cannot, however, be offset against your personal income.

That said, not following the tax rules can be costly. If a property investment doesn’t meet the requirements of the sole purpose test for example, a SMSF becomes  ineligible  for the normal super tax concessions.

And if you finance an LRBA through a related-party loan, the loan must meet the ATO’s  safe harbour guidelines. Otherwise, the income and capital gain from the asset will be taxed at the top marginal tax rate.

There’s a lot to think about, so if you would like to discuss property investments and your SMSF give us a call.

The information in this article does not take into account your objectives, needs and circumstances. We recommend that you obtain investment and taxation advice specific to your investment objectives, financial situation and particular needs before making any investment decision or acting on any of the information contained in this document. Subject to law, Capstone Financial Planning nor their directors, employees or authorised representatives gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of the information contained in this document. Principal Wealth Management Pty Ltd trading as BMO Financial Solutions ABN 53 109 336 601 is a Corporate Authorised Representative (CAR 277821) of Capstone Financial Planning Pty Ltd ABN 24 093 733 969 Australian Financial Services Licence (AFSL) No. 223135.

Do you know how your super is performing?

By Nikki Ashurst • November 2, 2026
Many Australians don't know how their super fund has performed or what it invests in. Are you one of them? Here's what to check and why it matters. Do you know how your super fund performed over the last two years? Many Australians don’t and are working towards their financial future without fully understanding one of their most important assets and without a clear plan for how their super may support them in retirement. That's not surprising, as many people view super as something that should run quietly in the background while they're busy with careers, families and everything else that life throws at them. But when you’re not sure what’s happening behind your balance, it’s harder to know whether you’re on track, whether your current approach reflects your goals or what opportunities might be available to help you make the most of what you’ve built so far. Your super isn't sitting in an account, it's invested Super is invested by a fund on your behalf across a mix of assets, with those investments working to grow your balance over time. Those include: Shares Ownership in Australian and international publicly listed companies. Their value can rise and fall, sometimes substantially over short periods but shares can provide capital growth over the long term. Property and infrastructure Real assets like office buildings, shopping centres, airports and energy networks. They can produce income and don't always behave in the same way as share markets, helping diversify investment holdings. Fixed interest and bonds Lending to governments and companies in return for interest. They can provide regular income and be steadier than shares, although returns and risk vary depending on the investment. Cash Generally, the most stable and lowest risk investment type. It can provide stability and faster access to money but typically offers lower longer term return potential. The investment option you choose determines the mix of assets held in your super based on your risk appetite. Most super funds offer options from conservative to high growth. If you’re young, a growth option with a higher exposure to growth assets like shares could offer higher returns over time – but it also comes with higher risk. As retirement nears, you might want to consider a more conservative approach with more defensive assets, like bonds for example to protect your savings. If you've never made a choice, you're probably in your fund's default option, which is designed to suit a broad membership. It’s worth knowing whether the mix you're in matches your circumstances and goals, including how far you are from retirement. Why performance alone is not a true comparison If you're thinking about how your super compares, returns are often where people start. The trouble is that a return figure means nothing without context: What it's being compared to Growth and conservative options invest differently and with different levels of risk. Compare like with like or the comparison may not be genuine. The comparison period A single year can be heavily influenced by short term market conditions. Super is measured in decades, so five, seven and ten year returns tell you far more about whether a fund is consistently doing its job, albeit not a predictor of future performance. Fees and tax Published returns should reflect investment fees, costs and tax but administration fees may be charged separately from your balance. Two funds quoting the same return can leave you in meaningfully different places once all fees are accounted for. Then there are the things that returns can't show you at all. For example, what insurance is attached to your account and what it's costing you, whether the fund offers guidance, tools and advice or simply sends a statement once a year. Another consideration maybe the level of support available when you need it. When comparing funds, it's worth looking at the full picture, including performance, fees, investment options, retirement support and member benefits. What today’s decisions mean tomorrow To understand how your super stacks up, start here: Find your investment option It's on your annual statement and in your online account. Look at what's in it Your fund publishes the asset allocation (shares, cash etc.) for each investment option. Check the long-term return for that option Focus on five and ten year returns, not just last year and compare them with equivalent options. Understand the total cost Add together administration fees, investment fees and insurance premiums as an annual dollar figure. Comparing super is about working out which option will perform best for you. Before you jump in, it’s worth understanding what's behind the numbers so you can make decisions based on more than a headline return. Knowing where you stand is the first step A super balance tells you where you are today. Understanding how your super is invested, how it compares and whether it's aligned with your goals helps show whether you're heading in the right direction. Source: MLC The information in this article does not take into account your objectives, needs and circumstances. We recommend that you obtain investment and taxation advice specific to your investment objectives, financial situation and particular needs before making any investment decision or acting on any of the information contained in this document. Subject to law, Capstone Financial Planning nor their directors, employees or authorised representatives gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of the information contained in this document. Principal Wealth Management Pty Ltd trading as BMO Financial Solutions ABN 53 109 336 601 is a Corporate Authorised Representative (CAR 277821) of Capstone Financial Planning Pty Ltd ABN 24 093 733 969 Australian Financial Services Licence (AFSL) No. 223135.

The SMSF landscape is changing

By Jude Schofield • October 7, 2026
More Australians are choosing to take direct control of their retirement savings by establishing a self-managed super fund (SMSF) and according to the SMSF Association, Aussies now see their super as an important part of building and managing their overall wealth.